Author Topic: Helping widowed mom with Canada investments  (Read 2485 times)

Jimmy007

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Helping widowed mom with Canada investments
« on: June 03, 2019, 02:16:55 PM »
I'm helping my recently widowed mother consolidate her investments. I think I have a handle on her US investments but I'm now trying to make sense of what she has in Canada and what to do with it. (My parents originally emigrated to Canada and lived there for about 15 years until they moved to Florida.)

She has:

$32,000cdn at Sun Life in some kind of pseudo life insurance vehicle called SunWise Elite Portfolio Series Balanced Fund. The management fee is 2.97%! It's in a RRIF that can either be transferred from my dad to my mom and left as is, or take a lump sum and do whatever she wants with it (after paying taxes?).

$70,000cdn at Investor's Group Wealth Management. Half of it is in a RRIF and the other half is straight investment. The monies are in a variety (about 8 total) income, dividend, and US equity funds but I haven't been able to figure out the fees yet. I can't imagine it will be good.

She also has $20,000 in a bank savings account, a very small pension ($50cdn/mo) and some money that she gets from the government ($300cdn/mo).

She does have family in Canada and will visit about once a year.

I'm wondering the following:

Is it better to transfer the RRIF money into my mom's name and keep it as a RRIF in these investments, or take whatever tax hit there might be and invest it somewhere else?

What would the tax consequences be if they were moved from the RRIF?

With the strong US dollar, is it better to keep the money as CDN in Canada or transfer it to USD in the US?

What other questions should I be asking?

K-ice

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Re: Helping widowed mom with Canada investments
« Reply #1 on: June 04, 2019, 01:23:04 PM »

$32,000cdn at Sun Life in some kind of pseudo life insurance vehicle called SunWise Elite Portfolio Series Balanced Fund. The management fee is 2.97%! It's in a RRIF that can either be transferred from my dad to my mom and left as is, or take a lump sum and do whatever she wants with it (after paying taxes?).

With the strong US dollar, is it better to keep the money as CDN in Canada or transfer it to USD in the US?


I'll just touch on these two.

For the first one she could transfer it into a RRIF at another institution and reinvest in something with less fees. As long as she keeps it in the RRIF there should be no tax hit.  The same advice probably applies for the Investor's group once you determine the fees.  (google couch potato portfolios for ideas to direct invest)

What age is she? Does she need to draw down every year (ie over 70).

You might want to google "tax efficient rrif drawdown" even if she isn't 70 yet.

Does she need the money in the US right now?
If not, I personally do not like converting money, even if it is done in an efficient way (google norbert gambit). I would keep the RRIF payout in a Canadian account and enjoy herself when visiting relatives. 


RichMoose

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Re: Helping widowed mom with Canada investments
« Reply #2 on: June 05, 2019, 04:11:45 PM »
I'm helping my recently widowed mother consolidate her investments. I think I have a handle on her US investments but I'm now trying to make sense of what she has in Canada and what to do with it. (My parents originally emigrated to Canada and lived there for about 15 years until they moved to Florida.)

She has:

$32,000cdn at Sun Life in some kind of pseudo life insurance vehicle called SunWise Elite Portfolio Series Balanced Fund. The management fee is 2.97%! It's in a RRIF that can either be transferred from my dad to my mom and left as is, or take a lump sum and do whatever she wants with it (after paying taxes?).

$70,000cdn at Investor's Group Wealth Management. Half of it is in a RRIF and the other half is straight investment. The monies are in a variety (about 8 total) income, dividend, and US equity funds but I haven't been able to figure out the fees yet. I can't imagine it will be good.

She also has $20,000 in a bank savings account, a very small pension ($50cdn/mo) and some money that she gets from the government ($300cdn/mo).

She does have family in Canada and will visit about once a year.

I'm wondering the following:

Is it better to transfer the RRIF money into my mom's name and keep it as a RRIF in these investments, or take whatever tax hit there might be and invest it somewhere else?

What would the tax consequences be if they were moved from the RRIF?

With the strong US dollar, is it better to keep the money as CDN in Canada or transfer it to USD in the US?

What other questions should I be asking?
I can try give some pointers. First, Sun Life and Investors Group are both notoriously high fee, crappy product companies. Get out if you can for a reasonable cost. Look for fund churning in the accounts to make sure they haven't repeatedly topped up on the front loads. If not, you should easily be able to open a new RRIF account with an online brokerage and invest in low-cost ETFs there.

For brokerages I like National Bank Direct and Questrade. National Bank Direct charges no commissions on round lots of ETFs (100 units), so they may be the better option in the retirement phase of investing.

We don't have a Vanguard or Fidelity equivalent where you can open an account and buy super low cost mutual funds. Instead, in Canada we use ETFs for our low-cost funds. Some of the easiest funds are Vanguard's portfolio ETFs: https://www.vanguardcanada.ca/individual/indv/en/product.html#/productType=etf&assetClass=balanced

It is generally best to keep money within the RRIF structure if you are a Canadian resident (but remember you can open a RRIF account and transfer money from one brokerage to another without triggering tax costs). RRIFs contain mandatory minimum withdrawals starting at age 71. Any withdrawal from the RRIF is taxed as regular income. This includes closing the RRIF.

However, if you close the RRIF the tax hit will probably be close to 25% as a non-resident. Getting a little into complicated cross-border tax areas that are beyond my scope of knowledge, you may want to look into what her current tax rate is on any income she receives from the RRIF. It could also be 25% (or thereabouts). If that's the case, the easiest thing may be to close the RRIFs, pay the tax, and move the money to her U.S. accounts.

If you keep the money in a RRIF, just keep it in CAD and buy ETFs to get foreign exposure. You can open a RRIF and hold U.S. dollars in the account with most brokerages, but it may not be worth the hassle. If you hold a U.S. dollar RRIF, you would typically buy American ETFs.

Good luck! Especially dealing with SLF and IG. They are a lot of fun and love to hit you with fees taking money out.

Goldielocks

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Re: Helping widowed mom with Canada investments
« Reply #3 on: June 18, 2019, 04:53:20 PM »
Sunwise Funds are Seg. Funds.  These are like regular mutual funds, but have a guarantee to not pay out less than a certain amount if the investments fall.  e.g., 75% guarantee if held to 10 years, or if you die before then.  In return they charge higher fees.   They are aslo protected from creditor claims, which is why some business owners like them, as they are offered as a life insurance product, which not all RRSP may be protected, depending.  They are called Segregated funds because the insurance company can not blend the $'s for these investments with their own business operating dollars, but must hold them separate, in trust.  Regular life insurance, term life, etc, doesn't have the same rules about segregation of money.

Thus, if the market has fallen since your mom bought these, then check to see if it makes sense to hold them long enough to get the guarantee. 

I will second the other posters.  The RRIF's can be consolidated into a single RRIF in the same person's name at a new institution. (unless its a locked-in "LRIF") Like an IRA roll over to a new account.   You need to find a brokerage that will hold RRIFs for US residents.  Try TD.   Once set up, you can buy vanguard funds if you like with it, keep it as fixed income, whatever you want.  You can even hold it as US $ currency in the TD RRIF account and buy US stocks in USD with it.   I would just wait for a favorable dollar exchange and convert it when / if that occurs as they don't intend to spend much time in Canada in the future.

Mutual funds in Canada were averaging 2.2% fees... so 2.97% is high but not unheard of for a "wrap" product.   Investors Group is notorious for having rear end loads (declining) so ask when the last $$'s was put into it / or the last re-investment / rebalance was made.. if more than 7 years, you are fine, otherwise be careful about rear end penalties... you may need to wait it out.

On $100k portfolio, your costs in fees are just under $3k/yr.  Could be worse.   It could be held as cash.

A RRIF is the same as an RRSP, except that it has minimum withdrawals calculated as (1 / (90yrs-current age))  to be withdrawn each year.  e.g., at age 80, 10% of the balance needs to be drawn.  This is intended to get it spent down and taxed by the time the person is 90 years old... however there is no maximum to the withdrawal, you just get a tax hit.

The only catch about taxes is in the year of death of the last spouse, 100% of the RRIF remaining is taxable in a single year.

The RRIF regular payments are typically treated as pension income by the US, and quite favorably / comparable  to the total tax on a US pension your mom would be paying if it is domestic..  So don't cash it out, as the annual pension income is treated very fairly now, but a lump sum may have a high marginal tax rate.   You may get to claim the Canadian tax withheld on your tax return and then pay US income tax on it.   I would not worry about RRIF payments and taxes to a US resident... taxes should work out the same.

Canada does not have estate taxes.  That is only a concern for the US tax return, or dying with a large amount still in the RRIF.   So here, you might have a reason to move  the RRIF to the USA,  e.g., to buy assets that are sheltered from estate tax, or to shelter future capital gains growth.  BUT!  This is not so much money so not a problem for you, likely completely exempt from estate taxes.